10-QPeriod: Q3 FY2016

Apple Inc. Quarterly Report for Q3 Ended Jun 25, 2016

Filed July 27, 2016For Securities:AAPL

Summary

Apple Inc.'s Q3 2016 earnings report (filed July 2016) indicates a challenging quarter with a notable 15% year-over-year decline in net sales, primarily attributed to decreased iPhone unit sales and a lower average selling price. Despite the overall revenue dip, the Services segment demonstrated robust growth of 19%. The company also saw a decrease in gross margin to 38.0% from 39.7% in the prior year's comparable quarter, influenced by foreign currency fluctuations and unfavorable leverage on fixed costs. However, Apple continued its aggressive capital return program. During the quarter, the company repurchased $10.0 billion of its common stock and paid $3.2 billion in dividends. The company also strengthened its balance sheet by issuing $1.4 billion in U.S. dollar-denominated and A$1.4 billion in Australian dollar-denominated long-term debt. Despite the revenue headwinds, Apple maintained a strong cash position and reiterated its commitment to R&D, with expenses increasing to support new product development.

Financial Highlights

57 data points
Beta

Revenue

$42.36B

38.0% Gross Margin

Net Income

$7.80B

18.4% Net Margin

EPS (Diluted)

$0.35

Total Assets

$305.60B

Cash & Equivalents

$18.24B

Free Cash Flow

$7.83B

Financial Statements
Beta
Revenue$42.36B
Cost of Revenue$26.25B
Gross Profit$16.11B
R&D Expenses$2.56B
SG&A Expenses$3.44B
Operating Expenses$6.00B
Operating Income$10.11B
Interest Expense$409.00M
Net Income$7.80B
EPS (Basic)$0.36
EPS (Diluted)$0.35
Shares Outstanding (Basic)21.77B
Shares Outstanding (Diluted)21.89B

Key Highlights

  • 1Net sales decreased by 15% year-over-year to $42.4 billion, primarily due to a 23% decline in iPhone sales.
  • 2Services revenue grew by 19% to $6.0 billion, showing a strong performance offsetting hardware sales declines.
  • 3Gross margin declined to 38.0% from 39.7% in the prior year's quarter, impacted by currency effects and fixed cost leverage.
  • 4Research and Development expenses increased significantly by 26% year-over-year to $2.6 billion, reflecting continued investment in innovation.
  • 5Apple returned $13.2 billion to shareholders in Q3 2016 through $10.0 billion in share repurchases and $3.2 billion in dividends.
  • 6Greater China sales experienced a significant decline of 33%, highlighting market challenges in that region.

Frequently Asked Questions

The primary driver of the revenue decline was a significant drop in iPhone sales, both in terms of unit volume and average selling price, which decreased by 15% and 23% respectively year-over-year. This was partially offset by strong growth in the Services segment.

Apple continued its aggressive capital return program. In the third quarter of 2016, the company repurchased $10.0 billion of its common stock and paid $3.2 billion in dividends and dividend equivalents. The company also increased its share repurchase authorization to $175 billion and raised its quarterly dividend by 10%.

Apple anticipates gross margin for the fourth quarter of 2016 to be between 37.5% and 38.0%. The company expects gross margins to remain under downward pressure due to factors like pricing competition, product transitions, potential increases in component costs, and currency fluctuations.

The Greater China region saw a substantial decline in net sales, down 33% year-over-year. This was primarily attributed to lower iPhone sales and the impact of foreign currency weakness.